US retail sales drop; China exports zoom; US-China talks to be extended; Airbus raises white flag on A380; ACCC investigates collusion dinner; UST 10yr 2.67%; oil up and gold holds; NZ$1 = 68.3 USc; TWI-5 = 73

Here's our summary of key events overnight that affect New Zealand, with news that 'me-first' policy making is struggling to put runs on the board.

First in the US, retail sales recorded their biggest drop in more than nine years in December, down -1.2%, as sales fell across the board, suggesting a sharp slowdown in economic activity at the end of 2018. This is a big surprise because markets had expected a small rise. And it might be worse than it looks as well; only strong car sales kept it from being a larger drop. Year-on-year, retail sales rose +2.1% higher than December 2017. The Fed noticed; and so did bond markets.

Markets in Europe reacted badly to the news, ending their day down about -0.5%. Wall Street reacted negatively as well, but in early afternoon trade has clawed its way back to nearly even for the day. Yesterday, in Asia, markets recorded little change; but in New Zealand and Australia market indexes declined -0.5% and -0.1% respectively.

In China, goods exports rose +9.1% year-on-year to US$218 bln in January, while imports slipped -1.5% to US$178 bln, with their overall merchandise trade surplus more than doubling from a year earlier. Although an impressive result, some of it might actually be related to when the Chinese New Year shutdown fell. But despite the overall decline, imports of natural gas hit a record high in January, increasing 27% above the same month a year ago. Another trade 'win' for Australia.

In their trade negotiations, there are now reports that the US is considering pushing back the deadline for imposition of higher tariffs on Chinese imports by 60 days to the end of April. This suggests they are still miles from an agreement, despite the soothing official statements.

And Fitch is pointing out how capricious US steel tariff policy is; apparently the US grants so many exemptions to Chinese steel producers they aren't feeling any effects. Not so American allies. This may help explain why the Chinese steel mills are buying so much Australian iron ore and coal, and at high prices. It may also explain why the Chinese can't get on top of their pollution problems.

In Europe, Airbus has announced that it will end production of its A380 white-elephant aircraft after Emirates Airlines cut most of its orders.

Yesterday we reported that the EU has broadened its blacklist of countries that encourage money laundering. Some of those include friends of the US and today the Trump Administration told US banks they can ignore the EU list. Apparently sanctions are only 'real' if the US imposes them. The EU list threatens American tax dodging.

And speaking of dodging the tax law, in Australia there are reports that their competition authorities are investigating the big four accounting firms for collusion after a secret dinner meeting between their CEO's was revealed. This involves Deloitte, KPMG, EY and PwC.

The UST 10yr yield is softer by -3 bps today following the US retail miss, now at 2.67%. Their 2-10 curve is now just under -16 bps. The Australian Govt. 10yr yield has dropped -6 bps to 2.10%. The China Govt. 10yr yield is little-changed at 3.10%, while the New Zealand Govt. 10yr yield is up again, up another +4 bps at 2.25%.

Gold is little-changed at US$1,311/oz.

US oil prices are up again today to just under US$54.50/bbl while the Brent benchmark is just under US$64.50/bbl.

The Kiwi dollar is firm again today, now at 68.3 USc. On the cross rates we are even higher at 96.3 AUc which is its highest in more than two years, and at 60.5 euro cents. We are also at a 2018 high against the British pound. That pushes the TWI-5 back up over 73.

Bitcoin is virtually unchanged at US$3,568. This rate is charted in the exchange rate set below.

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48 Comments

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11

In the paper we have China saying they can't trust NZ.

Pot.. kettle... black.
Time to get off the fence NZ.

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12

political rhetoric 101; always accuse your opponent of what you yourself are guilty of.

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13

Tourism is a low value industry and when considering the environmental effects probably a real negative to the economy. So who cares really. However this will be the start of the games, not the end. Just part of pre-war posturing.

Same with dairy? Do we have much else?

Tourism is New Zealand's no1 industry, ahead of Dairy and miles ahead of any other industry!
It absolutely does matter, tourists spend a lot of money in NZ, they need rental cars, petrol, taxis, accomodation, restaurants, cafés, clothes, souvenirs, flights, attractions, sim cards etc…

Just saw Gareth Vaughn's link below (09:58), here it is again:
http://www.globaltimes.cn/content/1138758.shtml

What?!
You mean to say Mr Li with his $3,240.90 to spend on a holiday is our target market?
How long was he going to stay for? 3 days?

The average length of stay is 7.38 days, also more importantly there are many more millions of Mr Li

Okay, Yvil, let's budget for the entirely hypothetical Mr Li.
Airfares and associated costs: ~$1250NZD (we'll assume that he got a pretty good deal).
That leaves ~$2,000.
Given your 7.38 day stay that's $270 per day as a budget, which sounds not too bad.
However, a 7 day tour bus arrangement would be approximately $1250 (All profits back to the mainland, btw), leaving $100 per day of discretionary spending. That's peanuts.

Even 100k of those Mr Li's doesn't make the NZ tourism industry viable.
It's the big spenders that make the difference. Coincidentally, those bigger spenders are also the ones who don't care about BS Bejing propaganda.

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21

Quote

Goodness the Chinese Communists must regard us as a bunch of suckers and hillbillies. Chinese tourism in NZ, it is devoid of value to New Zealanders being largely conducted by vertically integrated Chinese owned and operated businesses.

https://croakingcassandra.com/2019/02/12/challenges-and-complexities/#co...

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19

True.

The fact the Chinese Communist Party is throwing such a temper tantrum with Huawei not being allowed to build core 5G infrastructure for NZ (one of the Five Eyes) suggests decision to not allow Huawei is the right one.

This is a tiny commercial contract for Huawei, so why so sad?

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11

No tyrant likes to be told he can't do something.

Ain't that the truth?

They have repeatedly said that Huawei is a private company and nothing to do with the govt. So you have to wonder why the Huawei block has given comrade Xi Jinping such a large wedgie?

The powers that be in China are certainly not happy with us - http://www.globaltimes.cn/content/1138758.shtml

It is a good reminder that we should be concentrating our efforts to build trade relationships with other countries that do not attempt to interfere with our sovereignty.

Let's not forget that the USA gave us the cold shoulder for decades after we wouldn't let their nuclear-powered warships dock at any of our ports. It took until Key and his buddy Obama played a round or two of golf to get over that one!

It's true, but they didn't use Economic warfare on us, as the Chinese do.

Which was a short-sighted and idiotic decision by deluded flower children.

I say we let them in, and get ANZUS rolling again.

That (Nuclear) ship has long since sailed. What we need is an Economic ANZUS. If you start attacking us then you are attacking our partners. We are too small alone, need someone to cuddle up to. We should be pushing to have a trading block with US, Can, Europe and AUS that can't be bullied by China. Then we can leave them to make their own milk out of Melamine and see how that goes for them.

You mean like the EU?

The Huawei decision basically says 'NZ does not trust you China'. It does seem logical that they would be a bit pissed...

Really? So now Huawei = China?

Yes. Corporations and the state are not separate entities in red china. Nothing can truly exist outside the communist party - businesses, religions or media.

Why do you think we don't trust Huawei? Isn't it because we think they give our data to Chinese government?

Have we become the 5G five eyes whipping boy?

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10

what will rile most kiwis is china trying to assert influence on our policies and how and what we should say and do
meanwhile national fighting hard on behalf of china
looks like we have brought and paid for political party here, they even have an inside man that can report back .
should go well for them next poll when people realize they have been inflitrated

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11

She is completely tarnished by this. No way I could vote for the Nats if she was leader, given her and her families links to the CCCP. Fully bought and paid for.

The U.S. Gov't debt passes another milestone. What a great policy move to cut taxes when your spending exceeds your income by 26% or $870 billion. http://www.usdebtclock.org/

Gotta wonder how these parties get elected. Very few countries/voters seem to be concerned with their government debt for some inexplicable reason. I'm sure pleased that we do. A great legacy of Cullen IMO.

the ZH article links to a scribd page that has been taken down.. was going to see who conducted the study, because anything to do with glyphosate is highly political and plenty of "eco-warriors" are out there cherry picking data and producing loaded studies/conclusions

it's more of an issue with consumers, i also don't like my food sprayed with glyphosate although I do use it for weeds. The issue to me is the use of it on GM crops and as a knockdown in late season potatoes or grain crops.

The outcome could be decided by the consumer. Production is now up over 1.4 million tonnes pa.

https://edition.cnn.com/2019/02/14/health/us-glyphosate-cancer-study-scl...

https://www.theguardian.com/business/2019/feb/14/weed-killing-products-i...

DOI of the article - 10.1093/jnci/djx233 p-value of 0.07 means there's a 7% chance of seeing that trend or something more extreme just based on chance alone. Usual cutoff for statistical significance is 0.05 or below. I'm not convinced - also they're doing multiple testing, ie testing lots and lots of cancers looking for low p-values. IN that case I think the p-values need to be adjusted downward (cf Bonferroni). Need a real stats nerd to look into it.

Yes definitely getting sick of everything supposedly causing some form of cancer.
Using this approach they probably also found that roundup cures some forms of cancer but forgot to publish that.

https://www.resilience.org/stories/2019-02-13/the-win-to-stop-the-rocky-...

Compares interestingly with the Denniston judgement.

And in a dramatic 180 degree turn, JP Morgan goes from thinking crypto is a scam etc to announcing its own cryptocurrency: https://edition.cnn.com/2019/02/14/investing/jpmorgan-jpm-coin-cryptocur...

Hardly a u-turn. The only problem the investment banks have with scams is if they're not the ones profiting from them.

The only change will be now they have to outwardly pretend it's not a scam.

By having it fixed to the US dollar, it becomes a different version of electronic transfer.

This one may actually succeed

Perhaps - but this is nothing new. Look up tether, gemini coin, circle coin, true USD etc. Not quite as safe as houses (or bitcoin for that matter)

https://www.newshub.co.nz/home/politics/2019/02/chinese-tourists-backing...

Tourists should come to NZ for itself and not as a favour to NZ.

If I go to Europe or any other place, it to enjoy the beauty or landmark of that place and not as a favour to the country.

This is what happens when start to depend ecenomically on one country.

All unitedly as a country instead of condemning China will condenm the NZ governmenet as Money is God.

Check with National party and its supporters and also many in the media and they will find fault with government instead of condenming bullying by the so called friend (friend as long as one toe the line with what they say and want)

this goes way beyond gaining votes and money now to infiltration of one of our main political parties
https://croakingcassandra.com/2018/10/16/the-corruption-of-new-zealand-p...

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12160570

Any decisions made out of fear of potential blackmail or political pressure are almost certainly the wrong decisions

Go NZ!

Consumer sales are down in the US because debt is piling up and there's little room left on a lot of people's credit cards in the US. Car sales are keeping things going but defaults on car loans are rising rapidly.
https://www.washingtonpost.com/business/2019/02/12/record-million-americ...

Total CDOs and CLOs are approaching 2007 levels. CLOs are car loans, student loans and credit cards rolled together. During the GFC people abandoned their houses but kept paying other debts. Whatever happens next is going to play out differently.
https://www.forbes.com/sites/mayrarodriguezvalladares/2018/11/05/clo-iss...

Interesting bit of history about how central banks prefer housing and destroy productivity:
https://www.armstrongeconomics.com/international-news/canada/why-will-al...

What on earth is a collusion dinner ?

Dont these people know that Chartered Accountants are all members if a single body, covering both Aus and NZ called CAANZ

As a professional, I can assure you , I meet regularly with fellow members of the professional Bodies to which I belong , and we discuss ( withing limits ) issues of interest and concern .

The big 4 accounting houses are worse than the banks. And that's saying something.